Video 14 – What’s The Difference Between A Trade Buyer And A Financial Investor?

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Speaker 1:

We often get asked this, Steve: Difference between a trade buy for my business and an institutional investor, private equity house, family office, venture capital. Key differences?

Steve:

Yeah. It’s a good question. We work with both, as you know. We both work with what I would categorize as an in-sector trade investor or acquirer, a complementary sector trade investor or acquirer, and then ditto for financial.

Steve:

In our experience, both can be equally valid if the party, whether it’s trade or financial, can see future value in the business and therefore it becomes strategic.

Steve:

The downside, potentially, to trade interest often is that somebody in-sector and in trade … there’s a competitive challenge there … but they tend to look at it through a quite singular, and if I may say, sometimes short-sighted set of lenses. Therefore, they might struggle to see the future value in the way that either a complementary trade acquirer or investor may do, or financial investors tend to foresee.

Speaker 1:

Mike? You’re Mike. You’ve always been Mike.

Mike:

I have. My alter ego. Yeah, I think I would say that if I went back four or five years, typically the balance between the transactions that we saw in trade versus PE was probably skewed in favor of trades.

Mike:

I think what’s happened in the financial economy over the last five years, particularly, has tended to mean that you’ve got some fairly large institutional investors with money they need to put to work. And as a consequence, those investor buyers have tended to become far more serious bidders for businesses. I think it’s probably more like 50/50 in our space.

Steve:

Yeah. If I could jump in, at one point in time, I think private equity as a sector would have got a bad reputation in terms of what was said.

Steve:

In our world, as we’ll all be aware, we have a very clearly defined partner base of what I would categorize as boutique private equity investors that are interested in specific kinds of businesses and specific sectors, and therefore prepared to pay a premium for them if the story works in terms of what they’re seeing.

Steve:

The people that we deal with may be large institutional investors, but they’re often not. They’re often private family funds with a specific interest in a specific niche, which can drive value.

Mike:

Yeah. And I think I’d also say to a seller, don’t automatically assume that if you’re selling to a trade entity that your business is going to be self-contained within that trade entity and remain. In the same way, it’s not equally to be assumed a private equity company will break up business. Neither are necessarily true.

Mike:

Typically, a private investor will invest for three to five years with the idea of selling the business on after that period of time, and for greater value; a return on investment.

Mike:

They are, at least, particularly if you’re going to roll over investment, completely aligned with you as the seller in terms of your outcome objectives. They want to grow the business. They want to see it succeed. They’re putting their money alongside you and taking the risk with you, and you’re quite likely to see a good return out of that. I think it’s finding the right fit partner, again.

Speaker 1:

Yeah.

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